Singapore market activity may pick up with both listings and delistings

Singapore

PRIVATISATION activity may pick up this year as a result of attractive valuations after last year's sell-down and as businesses consolidate. Initial public offerings (IPOs) may also improve as deals delayed from last year due to market uncertainties kick back into gear in 2019.

Delisting volume far outweighed the new market capitalisation added to the bourse last year, according to data from Maybank Kim Eng. About US$17 billion exited the exchange, no doubt skewed by Global Logistic Properties' exit, which is still considered the largest private equity buyout of an Asian company.

By comparison, market volatility and a "risk-off" disposition among institutional investors caused listings on the Singapore bourse to take a plunge in 2018.

Data compiled by The Business Times shows that in 2018, IPO transactions on the Singapore Exchange (SGX) raised a total of S$730.2 million, across 15 deals. Only three were done on the mainboard. In value terms, this was about one-sixth of the total S$4.4 billion raised for the full year in 2017.

Maybank Kim Eng's regional head of investment banking, Rajiv Vijendran, noted that the real estate sector continued to dominate the IPO market in Singapore, accounting for 72 per cent of the market share. The bulk of this was taken up by Sasseur Reit's IPO which raised S$421.6 million; it was also the largest IPO on the bourse last year.

Another real estate listing was by property agency PropNex, which raised about S$60.1 million from the market in a deal worth S$240.5 million.

Mr Vijendran said: "We expect further IPOs of yield-based stocks like real estate investment trusts (Reits) and also those from the high-growth consumer sector."

Already, Malaysian theme park operator Sim Leisure Group has unveiled plans for a Catalist listing to fund its business expansion; it lodged its preliminary offer document in late December.

Stefanie Yuen Thio, joint managing partner of TSMP Law Corporation, agreed that IPO sentiment seems "relatively positive still", despite continued Sino-US trade tensions. "I believe Reits still have a lot of attraction for investors, but with the real estate portfolios increasingly based offshore," she said.

"It will also be interesting to see if the collaboration between the SGX and the Tel Aviv Stock Exchange will yield immediate results. Their focus on technology and healthcare is much in line with investor interest in Singapore."

On the privatisation front, she believed that merger and acquisition activity will ramp up as company valuations become more attractive. In addition, consolidation in the industrial real estate sector will continue as JTC's measures to increase supply to lower land prices continue to bite.

Carmen Lee, OCBC's head of investment research, expected cash-rich founders or companies to use current weak market conditions to either beef up their holdings or acquire companies amid the market sell-down.

"We expect corporate actions to be concentrated in the mid-cap space, especially for companies with healthy balance sheets and sound business models whose stocks trade below book values."

Privatisations are usually done by key stakeholders, while takeovers can be done by key stakeholders or external parties.

Ms Lee said that there are many factors that can influence a party's decision to take a company private. These include lack of trading liquidity in the stock, no medium- to long-term need to raise funds from the capital market, low share price versus perceived value, and management's preference to manage a privately-held entity without having to adhere to listing requirements and restrictions.

Indeed, a subsidiary of Tokyo-listed Japanese conglomerate Kyowa Exeo on Monday made a voluntary conditional cash offer for Catalist-listed DeClout at S$0.13 per share, and said it plans to delist the technology incubator, as privatisation would give it more operational flexibility.

Advising caution, Choe Tse-Wei, managing director, strategic advisory, DBS Bank, said that it is not possible to foresee whether the investment climate in 2019 will be an improvement over 2018's.

"It is obviously easy to comment that in a case where market valuations come down, owners of businesses may take the opportunity to buy up shares in the company, possibly to privatise the company."

But he believes this is an oversimplistic generalisation, as the buyers still have to be confident in the intrinsic strength of the business and its prospects and possibility of a future turnaround at the point of launching an offer.

At the same time, sellers have to lose long-term confidence in their shares and believe that the business and share price would remain in the doldrums for a prolonged period, or have alternative use for the money that will yield better prospects compared to holding onto the shares.

"Only when these perimeters are addressed might you see privatisation succeed. There are actual cases where buyers have walked away despite preparations."

On analysts' practice of shortlisting potential privatisation and takeover candidates - such as by looking at companies where majority shareholders hold sizeable stakes, or those that are trading drastically below value, or even those that are dual-listed in another jurisdiction, Mr Choe said this exercise is futile because these transactions usually take place to fulfil fundamental strategic objectives.

"I am thinking through all the cases we have had in the past and they are actually very varied circumstances... None of the factors really account for any predominance in the number of deals.

"Sometimes, the business owners see a lot of upside to their business and feel confident to run it, and are prepared to delist it because they don't feel the market understands their business as well as they do.

"Another factor would be where you have very strong private equity or financial investors coming alongside the business owners and telling them, 'You don't have to subject yourself to the vagaries of the stock market; I am prepared to fund you more generously than public minority shareholders can fund you through a listing.'"

This then negates the need for the company to maintain its listing status. Of the five privatisation deals done in 2018, family vehicles, sovereign wealth funds and private equity capital were involved in four of them.

READ MORE: Could cash-rich private investors be killing IPOs?